Payment Protection Program Lending – Additional $250 Billion on the Way?

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Two weeks ago I published a blog on the SBA’s new loan program, the Payment Protection Program (PPP) that outlined eligibility, how to apply, and funding mechanism. The CARES Act allotted $349 billion to this program initially, but it appears that this may not have been enough. We’re less than two weeks into the new program and there are already concerns that funding will dry up – leaving several small business owners without relief. In line with these concerns, Treasury Secretary Mnuchin announced on Tuesday, April 7th via Twitter that he had asked for an additional $250 billion in funding for the program. Though the request appears justified, there have been significant issues with the rollout of this program. The existing issues with PPP and initial reactions from legislators, banks, and news outlets to additional funding will be discussed below.

A Rocky Start

According to an article published by Reuters on April 6th, there have been a myriad of issues with the administration of the PPP thus far. One major issue stems from ETRAN – the portal used to submit PPP loan packages to the SBA for approval. Some banks reported that the system crashed on Monday for hours, leaving them unable to process applications. Moreover, in addition to the clunky interface, there has also been some confusion around what documentation is required for the SBA to issue an authorization which has been a pain point for lenders.

This has effectively created a log jam, resulting in tension between all relevant stakeholders. Lenders are frustrated with incomplete and conflicting guidance from the Treasury/SBA which prohibits them from processing applications efficiently, this is turn leads to frustration from borrowers who feel lenders have been unresponsive or restrictive (some banks have restricted access to PPP loans to existing clients). In fact, the implementation of the existing program has been so mired with issued that the Fed had to once again step in and offer a facility to banks to move the process along. Specifically, the Fed has agreed to provide “term financing backed by PPP loans” which is a fancy way of saying the Fed will purchase PPP loans originated by banks concerned about the costs associated with originating/servicing the loans.

The Rational for Additional Funding

Despite the lackluster rollout, demand for PPP funding is high and continues to grow. Many small business owners are concerned that funding will run out before they can get access to relief. This appears to be a sentiment shared by Senators McConnell and Rubio. The former issued a statement on April 7th stating “it is quickly becoming clear that Congress will need to provide more funding or this crucial program may run dry. Nearly 10 million Americans filed for unemployment in just the last two weeks. Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program. The latter tweeted on April 6th that “the fear that PPP will run out of money is creating tremendous anxiety among small business.”

In addition to concerns from legislators and small business owners, banks have weighed in to express concerns about the existing allocation for the program. Bank of America and Wells Fargo have reported a combined $42.6 billion in applications – more than 10% of the total allocation over the course of five days. This is an issue that goes beyond large corporate banks, several community banks have also expressed technical and logistical issues with the program so far, issues that are compounded by increasing demand from small business owners. Moreover, small businesses have started to complain about access to capital. Many lenders are backed up with thousands of applications and have started to decline new applicants, which will ultimately accelerate the need for additional funding or incentives for banks to process these loans – likely both.


Though more funding appears to be justified, it is my opinion that the real issues lie in the administration of the program. If lenders and the Treasury/SBA cannot get on the same page quickly, implementation of the program will be underwhelming. Despite the best efforts of Congress and the Fed, if the program is not accessible to Main Street than money will not flow to those who need it the most, this will in return result in a failure of the program. I believe efforts to provide additional funding to the initial PPP allocation should also include clear guidance from federal administrators to lenders to ensure the program can be implemented more efficiently moving forward.

Thank you for taking the time to read this. If found this content valuable, please be sure to like, subscribe, and share it with others!

Differences Between the Coronavirus Economic Crash and 2008 Financial Crisis

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This post will address the ways in which the coronavirus crash is different from the 2008 financial crisis and why these differences matter. The most apparent difference is that the coronavirus crash has been largely self-inflicted while the 2008 crisis was characterized by a downturn in real estate markets. Moreover, the 2008 crisis was particular to the U.S. (though the cascading effects were felt globally). This is the first time in history that we’ve witnessed a global shutdown of the economy at scale and all countries have essentially opted in to this shutdown of the economy via public health policy decisions. To put it simply – the economic crisis has been subordinate to the public health crisis and this is unprecedented.

2008 In Perspective

As mentioned above, in 2008 we witnessed the impact of financial uncertainty resulting from a downturn in real estate markets. The primary cause of this downturn can be attributed to the subprime mortgage funding markets. When borrowers were no longer able to afford their subprime mortgages, the balance sheets of major banks collapsed. This was compounded by the excessive use of leverage, which resulted in a chain of defaults throughout the financial sector. This was an unprecedented financial shock at the time and it resulted in the contraction of economic activity. Between 2008 and 2009 we saw more than 750,000 job losses per month. This is resulted in a total of 8.7 million job losses over the course of the entire recession.

Major American companies ran the risk of going bankrupt and the ramifications in the global economy were profound, leading to the largest contraction in international trade recorded at the time. The crisis required significant government intervention in terms of monetary and fiscal policy to avert a prolonged recession. Interest rates were slashed, we witnessed the introduction of quantitative easing, and the Troubled Asset Relief Program (TARP) was implemented to remove toxic asset from bank balance sheets. As a result of this unprecedented effort, an economic recovery began in the back half of 2009. Ultimately, the 2008 financial crisis is a story about, as Steve Eisman puts it, “leverage being mistaken for genius.”

The Coronavirus Crash Thus Far

It’s still too early in the game to predict with any level of certainty what the ramifications of this economic downturn will be, but a recession certainly feels inevitable. The prior crisis was particular to banking institutions and decisions they had made; the current crisis is embedded in the real economy as we are deliberately shutting down the world’s major economies for a period of at least several months – perhaps longer. This deliberate action has, in my opinion, exposed a significant flaw in our financial system. Similar to 2008, it is apparent that leverage has once again been mistaken for genius. This time, however, it isn’t the banks that are over leveraged – it’s the corporate sector. The decision to shut down the U.S. economy has resulted in a liquidity crisis for several large firms, most notably in the airline industry. Moreover, the reason many of these firms lack the liquidity to weather the shutdown is because they have spent significant amounts of their earnings on stock buybacks and the results have been catastrophic.

As of March 24, 2020 there has been ~6.6 million unemployment claims filed. This is rapidly approaching the total amount of job losses we saw in 2017. This has again lead to unprecedented actions taken in the spheres of monetary and fiscal policy. The Fed, in addition to cutting interest rates down to zero, have an enacted a policy many are referring to as “QE infinity” as there appears to be no end in sight to the amount of money they will deploy in the economy during this crisis. As it relates to fiscal policy, last week we saw the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is a truly historic stimulus package totaling $2TN that includes economic stimulus for individuals, small business owners, non-profit organizations, and large corporate employers. Additionally, the act prohibits the use of stock buybacks for any publicly traded company that accepts proceeds from the stimulus package.


The market’s reaction to the radical new monetary and fiscal policies has been relatively stable (i.e. sell offs slow down and individuals begin purchasing stocks again), but the market is still highly volatile and susceptible to shocks. Until a solution is provided to the public health concern the market will remain unpredictable, and it is still unclear how the economy will recover once the shutdown comes to an end. However, one thing is for certain – this crisis has fundamentally altered the way we conceive of markets and the use of leverage. It will be interesting to see what comes into play after the dust settles.

As always, thank you for taking the time to consider my perspective. If you found this content valuable, please remember to like, subscribe, and share it with others.

SBA’s Payment Protection Program – What You Need to Know

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Last week I discussed the differences between monetary policy and fiscal policy and framed both within the context of the COVID-19 pandemic. This week I thought it would be beneficial to provide an overview of the SBA’s new Payment Protection Program, since this is a good contemporary example of fiscal policy in action.

The Payment Protection Program (PPP) is part of the broader CARES Act that was approved by Congress last week. This program is specific to small business owners and has been implemented with the aim of providing payroll relief in the form of low interest loans, so small business owners can retain employees. In addition to employee retention, the PPP also allows loan proceeds to be used for mortgage payments, utilities, health insurance, and retirement contributions. Moreover, so long as borrowers can demonstrate that they have allocated loan proceeds to eligible uses, they will be eligible for loan forgiveness. A more detailed overview of the PPP is provided below.


The PPP authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months.

Eligible Borrowers

All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).

For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. *Additional guidance may be released as appropriate.

Eligible Purposes of the Loan

You should use the proceeds from these loan on:

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Interest on mortgage obligations, incurred before February 15, 2020; and
  • Utilities, for which services began before February 15, 2020.

A Deeper Look at Payroll

Eligible payroll costs include the following:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self employment, capped at $100,000 on an annualized basis for each employee.

Max Loan Amount and Number of Loans

Eligible borrowers will only be allowed to qualify for one loan; however, these loans are unique to individual businesses and the SBA has waived its affiliation basis requirements. Therefore, borrowers with multiple businesses will be able to apply for relief on a business by business basis – so long as the loan request(s) are in line with the eligible payroll applications.

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

Loan Structure

PPP loans will be fixed at 0.50% for the life of the loan. The maximum allowable term will be 2 years. All payments are deferred for 6 months (however, interest will continue to accrue over this period). There are no prepayment penalties for these loans, no collateral is required, and the personal guarantee has been waived.

How to Apply

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit for a list of SBA lenders.

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. *Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Required Certifications

As part of the application process, borrowers must certify in good faith that:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under the program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of eligible payroll costs.
  • Loan forgiveness will be provided for the sum of documented eligible payroll costs. *Due to the likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • All information provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.


This is arguably the most comprehensive relief package put together by the Federal Government and it is designed with the primary goal of ensuring small businesses are able to retain their employees and maintain essential overhead during these uncertain times. Moreover, the underwriting guidelines for this program have been significantly relaxed to maximize utilization of the program and empower lenders to close transactions efficiently.

If you know any small business owners that would benefit from this program, please share this post far and wide! If you are a small business owner, I hope this post was helpful and that you take advantage of this program and get access to much needed relief.

Fiscal Policy: Key Takeaways

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In a general sense, fiscal policy is designed to target the total level of spending, the total composition of spending, or both within the context of the national economy. Fiscal policy is carried out by the legislative branch of the U.S. government and achieves the aforementioned by changing levels of government spending and taxation. Fiscal policy approaches levels and composition of spending in two primary ways:

  • To increase demand and therefore economic growth, the government will introduce measures to cut taxes and increase spending (this results in a budget deficit).
  • To reduce demand and therefore decrease inflation, the government will increase tax rates and cut spending (this will reduce the existing deficit and can sometimes result in (1) a balanced budget or (2) a budget surplus).

Fiscal Policy

If the government reaches the conclusion that there is not enough business activity in the national economy, it can increase the amount of money it spends to spur growth (this is often referred to as a stimulus package). This spending activity most often takes the form of subsidies, tax credits, and infrastructure investments. If the government does not collect enough money in taxes, they can borrow money by issuing debt securities in the form of bonds (an especially popular funding mechanism at the municipal level). The process of governments issuing debt to finance initiatives is referred to as deficit spending.

Conversely, if the government decides to pull money out of the economy via tax hikes, they will slow business activities. This mechanism is typically employed to stymie inflation and can also be utilized to finance government projects or pay down existing deficits. However, it is important to keep in mind that governments are more likely to leverage fiscal policy to stimulate, rather than deter, economic growth. The use of fiscal policy to directly influence economic outcomes at the national level is one of the foundational elements of Keynesian economics.

When a government makes the decision to spend money or alter tax policies, it must be specific as to where money will be spent and what they will tax to finance the spending. In doing so, government fiscal policy has a significant amount of autonomy in regard to targeting specific communities, industries, investment projects, or commodities to encourage or discourage production. Though rooted in economic outcomes, the drivers for fiscal policy decisions are not entirely driven by economic factors. Political and social factors have played significant roles in influencing government spending regimes historically.


Ultimately, the name of the game for fiscal policy is targeting aggregate demand – the measurement of the total amount of demand for all goods and services produced in an economy. This is typically represented as the total amount of dollars exchanged for a set of goods or services at specific price during a specific period of time.

This is a doubled edged sword. On the one hand, companies in a targeted sector or set of sectors can experience enhanced revenues. On the other, if the economy is operating at or near full capacity, expansionary fiscal policy can ramp up inflation. Inflation, in turn, has the potential to diminish corporate margins in competitive industries. Moreover, inflation can have an adverse impact on those wed to a fixed income. The key takeaway here is that fiscal policy can have a profound impact on consumers – it can lead to increased or decreased employment outcomes while enhancing or diminishing purchasing power in the real economy.

As always, thank you for taking the time to read my thoughts. If you found this content valuable please subscribe, like and share!

Monetary Policy: Key Takeaways

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The Covid-19 pandemic has introduced an era of profound strife and uncertainty. In the simplest terms, this pandemic has created two huge problems in the areas of public health and economics. To make matters worse, these public policy domains are, generally speaking, at odds with one another. This post will focus on the economic dimensions of this crisis at a high level.

When a national economy experiences macro level shocks there are two primary policy tools at the disposal of government and quasi-government actors – Monetary Policy and Fiscal Policy. The former is focused on addressing interest rates and the supply of money in circulation, it is generally managed by a central bank (such as the Federal Reserve). The latter addresses taxation and government spending, it is generally determined by legislation. Specifically, this post will proved an overview of monetary policy and explain how it is utilized by the Federal Reserve to promote certain outcomes within the national economy.

Monetary Policy

Monetary policy is typically carried out by Central Banking authorities, in the United States it is carried out by the Federal Reserve – often referred to as “The Fed.” Monetary policy involves two primary actions:

  • Establishing base interest rates.
  • Influencing the supply of money (most often carried out through policies of “quantitative easing” which increase the supply of money in the nation.

The Fed has typically used monetary policy to stimulate the economy or check its growth. When the Fed cuts interest rates, it’s sending a signal to individuals and businesses that they should borrow money and spend it in the economy. Conversely, when the Fed increases interest rates the aim is to encourage saving, rather than spending. This acts as a brake on inflation and other issues associated with rapid growth.

More specifically, the Fed has looked to three primary policy levers when influencing rates and borrowing activities – Open market operations, changing reserve requirements for other banks, and setting the discount rate.

Open market operations refer to measures carried out on a daily basis. These operations occur when the Fed buys or sells U.S. government bonds, thereby injecting or withdrawing money out of the national economy.

The second, changing reserve requirements, relates to the percentage of deposits that banks are required to keep in reserve (i.e. cash on hand at any given time). The key takeaway here is that through it’s control over reserve requirements, the Fed is able to directly influence the amount of money created when banks make loans to individuals and businesses. This is important to keep in mind in the present, as reserve requirements have become relatively lax.

Finally, the Fed has dominion over the discount rate. The discount rate is the interest rate the Fed charges on loans it makes directly to financial institutions. The key takeaway here is that the discount rate has an overarching impact on short-term interest rates across the entire national economy.


Ultimately, monetary policy is more of a high level tool. It’s focus lies on expanding and contracting the money supply while influencing borrowing and saving behaviors, however it has less of an impact on the real economy. The key takeaway with monetary policy is that it exists to dictate banking behaviors in the national economy through its control of interest rates and the money supply.

In normal times, the Fed’s focus will be placed on contractionary or expansionary measures. In times of crisis, however, their focus shifts to providing enough liquidity in the financial system to maintain solvency. This, in large part, helps explain the measures taken by the Fed over the last couple of weeks.

If you made it this far, thank you for taking the time to read this! I will be following up on this post with a post that provides a similar overview of fiscal policy. If you found this information valuable, please like and share it with others.

Sea of Red: Interview with a Stockbroker

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One of my close friends from college currently works as a stockbroker with a large financial services company. He is responsible for executing trades via the firm’s proprietary trading platform and his area of expertise lies with the firm’s specialty trading products. Given his experience on what many would consider the “front lines” of the market, I thought his insight would be quite valuable. I’m grateful he was kind enough to set aside time for a brief interview.

He requested that his name and firm remain anonymous, but was open to sharing information about his day to day experience and how that differed from what he has experienced during a truly historic week. He also provided some candid feedback on key market signifiers, the Presidential Address, and the Federal Reserve’s $1.5 trillion injection.

  1. What is your title and job description at your brokerage?

    I’m a client services agent. I work with our trading desk, primarily for our discretionary trading platform for the firm’s financial advisors. Secondarily, I focus on our specialty trading products – primarily fixed income and options products.

  2. What is a typical day like and how is that different from this week?

    A typical day on my team involves assisting advisors with the discretionary trading platform, serving as a middle man between the equity and bond desks, and executing trades related to our specialty products. I also review trade corrections for the discretionary platform. Occasionally, I’ll be tasked with back-office projects related to operations.

    This week, our call volume, in general, is through the roof. It’s very difficult to execute bond trades, and I’ve had to review about ten times as many trade corrections as usual. Very hectic, very busy days from market open to market close.

  3. What are some of the most common trading activities you’ve noticed this week?

    Recently I’ve been noticing a lot of clients liquidating their discretionary trading accounts or reallocating their positions into more conservative models. Additionally, I’ve noticed a lot of clients liquidating their fixed asset accounts and re-allocating funds into the equity markets. When reviewing trades placed on our website by clients, I’ve noticed several high dollar accounts placing large positions into the equity market – i.e. the people with a significant amount of capital do not appear to be panicking.

  4. From your perspective, what is the driving force behind this week’s historic losses and why were they so devastating?

    Generally speaking, I think we were due for a correction, or at least a small recession. When you look at market signifiers, such as the inverted bond yield curve, this has been anticipated and overdue. This viral outbreak is simply accelerating it.

  5. Expand on the notion of market signifiers – what are some of the patterns you’re observing as a broker and why are they relevant?

    The inverted yield curve is the biggest sign. I’d say overall, the growth of our economy has been questionable in the last few years. A big event in my eyes was General Electric falling off of the DJIA in mid-2018. It says a lot that the DJ is the yardstick we use to measure the health of our economy and essentially every company on the list is partially to completely reliant on Chinese production. This virus dropped their output significantly the last several weeks and it is reflecting in investors’ perception of the market. The big tech companies on the Dow (Microsoft, Cisco, Apple, Intel) have all of their hardware made in China or other overseas markets. The industrial conglomerates like 3M and United Technologies are much the same. The retail giants rely on cheap Chinese goods flowing in to stock their shelves. You can see how this is a problem.

    Beyond this, I’d say the oil situation may actually be more impactful on the markets after China returns to full capacity. There will definitely be at least a brief recession due to the virus, which in a way is good, because it is forcing the market to un-inflate and correct. But the games going on between Russia and OPEC will have a lasting effect. Oil is one of the only things we have been producing domestically. The price of oil has declined gradually from a peak at over $100/barrel during the Obama administration to around $45 before this pricing skirmish began. Now it will likely be around $30 for the foreseeable future. This is very good from a consumer’s perspective though: cheaper travel, cheaper produced goods, cheaper gas. But it is going to hit one of the few functioning American industries pretty hard. I suspect some kind of tariff will need to be applied to combat this issue.

  6. How would you explain the relationship between novel coronavirus and the financial markets?

    I observe a few dimensions of it.

    As I alluded to above, the virtual shutdown of the Chinese economy, caused by this virus, has shown that our own economy is de-facto dependent on Chinese Industry. This is a huge problem for the future, that is not being fixed. Trump has paid lip service to the necessity to “bring back industrial jobs”, yet essentially zero progress has been made toward this end so far. It is something that will actually have to be addressed soon, before the US is completely un-industrialized, which will cause an even more severe and long-term decline in investor confidence.

    Second, Travel and Tourism industries have also been shut down. You can see this reflected in the prices of Airline Stock, Royal Caribbean and Carnival & other Cruiseliners, Vegas Resort Companies, etc. There is not much that can be done for this until the need to quarantine on a mass scale diminishes.

    Third, there is extreme emotion and hysteria involved in a lot of these sell offs by retail investors, or public-conscious institutional investors (like pension funds, endowments, etc). It is a very, VERY good opportunity to buy in if you can see past this. There will only be a few times in a lifetime to invest at such a discount. The wisest thing is to take advantage of it. In 2008 you could buy major companies for literally less than a dollar a share while people were panicking. If you bought Bank of America at its lowest and sold and its peak before this crash, you would have multiplied your money nearly 30-fold.

    This isn’t to say that it isn’t being pushed by the institutional investors either though. Earlier in February, Bezos himself sold off billions of dollars of his own AMZN stock. I have heard the same of executives of a lot of companies. I’ve read published rumors of the same for my own firm, where the stock has dropped by half.

  7. In last night’s Presidential Address Trump outlined three primary responses to the crisis – restricting travel from Europe for 30 days, instructing the IRS to push back the tax deadline, and calling for low-interest loans for small businesses in tandem with a payroll tax cut. Why, in your opinion, did his address fail to quell the markets?

    The travel ban basically instigated the biggest drop we’ve seen in a decade. I’m sure there are logistical reasons for it, it definitely seems like something should have been done sooner, but it is difficult to expect the other financial plans to actually remedy the situation. I suppose the tax extension is convenient, but the tax cuts and loans are not going to have an effect until the virus is gone. I think the Fed’s rate cuts are the most significant thing happening right now, but they will need to maintain it for a while, and probably drop rates lower after the pandemic dies down, in order to get us out of the bear market.

    Trump is clearly trying to give himself talking points for re-election debates, to point to the things that he did to say he did them. They may end up as good things done to overcome the forthcoming recession, but Corona-hysteria will ignore them in the meantime.

  8. What do you think of the Federal Reserve’s decision to add an additional $1.5 trillion to the system? Will a stimulus package have any significant or long-lasting effects in this situation?

    Will this be necessary? I suppose the answer is yes. I think doing so at this point is completely irrelevant. Dropping rates and expanding the monetary supply doesn’t make a difference if huge portions of huge industries are inoperable due to a viral pandemic. Maybe they are doing such now with the prediction its impacts will begin when things actually start to pick back up.

  9. Finally, based on your understanding of financial markets, what do you think would be the best approach or set of approaches to stabilize the financial markets?


    I don’t think we are out of the woods yet, there will be more panic selling, and the market will zig-zag up and down as it has been, until corona virus isn’t striking fear into the global economy. It is going to be hectic and rough, especially for those working in the industry or people reliant on income from their investments. I think we will see the DJIA decline below 20k, I wouldn’t be surprised to see it bottom out lower than that.

    Then it will begin to rise, and stabilize on an upward trend.

    You just have to hold fast, keep buying in and you won’t regret it.

    Ride the Tiger.

If you made it this far, I certainly hope you enjoyed this interview. It was an absolute pleasure for me to facilitate this conversation. If you found this content interesting, please be sure to subscribe and share it!

Managed Narratives

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Earlier this week I read an article titled The Narrative Matrix by Peter Cecchini, published in Epsilon Theory (an outlet I highly recommend you follow for a macro view of the financial markets). The piece explores narrative through the lens of The Matrix, a film that depicts the world as nothing more than a computer simulation. He states: “The Matrix might be the ultimate narrative – one so pervasive and enveloping that it transforms participants’ reality. It presents an extreme and fictional case study that may be informative of the narratives we see in today’s world – particularly in politics and financial markets.” Cecchini makes the case, appropriately in my opinion, that we are all subject to carefully crafted narratives, and these narratives serve as the foundation for a matrix of sorts.

The Machine

This picture was sourced from Redd on Unsplash

The Narrative Matrix expands on some of the notions posited by Ben Hunt, the founder of Epsilon Theory. Ben Hunt is a former political science professor and hedge fund manager – needless to say, he offers a unique perspective. Much of the work he has published with Epsilon theory focuses on the impact of narrative in the financial markets and Cecchini does an excellent job of distilling Hunt’s arguments in relation to market forces.

The thesis here is that reality and perception inevitably merge within narratives. Put another way, reality becomes diluted by sentiment. The consequence of this dilution is that it becomes increasingly difficult to evaluate situations objectively, rather we act in accordance with shared perceptions about reality.

One of the most interesting takeaways from this article is the notion of “fiat narratives” – narratives crafted in response to a particular event by authoritative institutions, as we’ve seen with the coronavirus. The primary purpose of such narratives is to normalize extremes (such as excessive rate cuts). As Cecchini puts it “I might suggest that fiat news is particularly well understood within a strong form narrative framework because the forces behind the narrative are powerful enough to create a virtual reality.”

The key here is that these narratives are distributed to everyone through mainstream television, radio, and social media outlets. Since narratives can be shared en masse by public and private sector institutions, they can shape perceptions rapidly. Once perceptions have been shaped, we are subject to a new reality and we often act accordingly.

It is important to note, however, that narratives can be broken. When a popular narrative becomes so far removed from reality that it can no longer be justified. Inevitably, people wake up to the fact that the chasm between what they’ve been told to perceive and what they’re experiencing, in reality, becomes too wide. This can be devastating, as evidenced by the market’s reaction to the coronavirus over the course of this week.

The importance of understanding narratives and the role they play in our society is essential to orient yourself in a world that is often obfuscated. This is particularly true in the realm of financial markets, where perception is a major driver of market activity. Markets are incapable of processing information in an absolute sense, rather, information is perceived within the context of a narrative. How these narratives are perceived by participants in the market may vary significantly and these perceptions will ultimately guide action.

In Pursuit of Yield

We’ve financially engineered ourselves into a 100 year drought.

Travis Duhn

When I think about finance, I tend to fixate on the financial system as a whole. I believe there is tremendous value in mapping out the forces at play in the markets, how these forces interact, and ultimately, arriving at a clear picture of why these forces behave a particular way. This post is a small piece of this puzzle, but an important one nonetheless.

My aim is to put forward an argument that explains the contemporary characteristics of the financial markets as well as an explanation for why these characteristics have come to define it. This is a question that my close friend/business partner and I have been trying to come to grips with as of late, but discussion can only take you so far. Ultimately, the best way to distill your thoughts on a particular subject is to write them out. This is our attempt at sense-making and we hope you’ll appreciate our conception of this complex system.

The Flat Economy

Contemporary financial markets are oriented towards the endless pursuit of yield for investors. This orientation has been developed and maintain via monetary policies that prevent the occurrence of a healthy deflationary period. By refusing to let the system run its natural course, we’ve nurtured a chronically ill economic environment that is increasingly characterized by the pursuit of short-term gains at the expense of long term growth.

The current monetary policy more or less relies on quantitative easing to prevent deflationary periods and adjust asset values. This creates an environment where investors rely on debt financing to offset underperforming returns, which in turn leads to a cyclical debt crisis. The endless pursuit of yield within the current structure disincentivizes long-term growth strategies and hinders innovation because the time horizon for returns has been skewed. Put another way, the financial markets have become accustomed to the quick fix.

Reduced investment into the growth sectors leaves the economy stagnant and increases the demand for riskier short-term investments because these investments are effectively more liquid. Unfortunately, this leads to greater yield repression in the long term, creating the need for greater yield in the short term. This essentially constitutes a positive feedback loop that maintains the current structure, resulting in a flat economy. The greatest concern arising from this dynamic is that bursts of volatility within the system are mistaken for instances of growth.

The Notion of Permanent Growth

The Solow-Swan model is an economic model that establishes a framework of long-term economic growth. Simply put, the model predicts that in the long run, economies eventually converge to reach equilibrium. Therefore, permanent growth is only achievable through prolonged technological progress. The way this is supposed to play out is through innovation, specifically innovation that generates an increase in per capita productivity, which in turn leads to greater returns on investment.

This typically occurs cyclically – a period of relatively high-interest rates encourages investors to save capital. Conversely, this is followed by a period of low-interest rates which incentivizes the use of leverage to deploy capital. The current system is essentially defined by a permanent (or at least seemingly permanent) low-interest-rate environment and as a result, innovation is stifled. This is effectively a system that is forced to cannibalize itself in order to generate returns. The consequence of this is that the system is only able to sustain itself at the expense of long-term growth and innovation. This results in a perverse kind of permanent growth, whereby leverage is perpetually used to extract returns in the short-term.


When you conceive of the system in these terms, it is easy to see the cause for concern. The contemporary financial system is one in which yield is artificially created through various debt instruments. This kind of financial engineering has enabled the system to arbitrage itself in the short-term to generate returns for investors, but this comes at a significant cost. Reliance upon debt to extract yield in the short-term has undermined the role of long-term investing and has therefore hindered the ability of our economy to innovate in a meaningful way.

This triggers some important questions – is our economy due for another “great recession?” What are the repercussions for delaying a recession further? And would we be better off if we experienced a correction sooner rather than later? These are topics that will continue to be explored as this blog unfolds.

Financial Content

When it comes to financial content, it’s very important to identify legitimate sources, especially since the content you choose to consume on a regular will constitute your daily news cycle. In this post I will present a few of my favorite finance publications and make the case for why you should incorporate some (or all) of these sources into your feed. These are great sources whether you’re just getting acquainted with finance, an active practitioner, or somewhere in between.

Quality over Quantity

There is only so much information we can actually consume and retain over the course of a day. Therefore, when it comes to staying on top of financial topics I place a lot of weight on finding a handful of quality sources, rather than stuffing my feed with as much information as possible. The way I see it, if you try to process too much information at once without getting your bearings straight, you won’t retain much at all. In the sections that follow I am going to make the case for some of my favorite outlets, but ultimately I would argue that this is an exercise anyone who has an interest in finance should go through. Once you take the time to find outlets you’re reviewing on a daily/weekly basis, you’ll know you’re hooked.

The Wall Street Journal

Okay, this first one is pretty obvious – but it is an absolute staple. The Wall Street Journal remains a journalistic authority on all things related to the financial sphere and it should be a part of any aspiring financier’s daily feed. The reason I’m so invested in the WSJ is that it is arguably the most comprehensive daily resource for financial news in the U.S. and abroad. Having the WSJ as part of your daily feed will certainly keep you in the know when it comes to the most relevant financial, political, and business-related news. The quality and consistency of their content is well worth the price of admission (~$40/month).

Hidden Forces

Hidden Forces is a podcast hosted by Demetri Kofinas that facilitates conversations with prominent (and often contrarian) thinkers in the realms of technology, finance, social science, and occasionally, the hard sciences. The thing I love about this podcast is that you are always provided with something new and challenging to consider at the end of each interview. While the guest list is somewhat varied, I think it’s fair to say that a majority of the guests are experts in a finance related domain. This show is a particularly good resource for those interested in developing a greater understanding of the forces at play in financial markets. This is a free podcast, however there are subscription services available that range from $10-20/month if you’d like to have access to longer interviews and more comprehensive content (such as transcripts and show notes).

American Affairs Journal

American Affairs is a quarterly journal of public policy, political thought, and economic thought. It was founded in 2017 with the aim of providing an outlet for people who consider conventional partisan platforms ill-equipped to address contemporary public policy challenges. Although this journal is geared towards public policy, a considerable amount of their publications address financial and economic topics. The reason I recommend this publication so highly is because it is one of the few truly contrarian outlets that I have come across. The articles are always well written and I can all but guarantee that the arguments presented in American Affairs are arguments you will not be introduced to anywhere else (and it only costs ~$20/year).


Though different in regards to their respective mediums, I decided to showcase these three outlets because of a common thread between them – each of these outlets explores financial topics through the lenses of other disciplines. The addition of these perspectives allow for a more nuanced understanding of the forces that influence and dictate the outcomes we observe in the financial system. Ultimately, the argument I wanted to make is that finance is an interdisciplinary topic; the more exposure you can get to a wide range of perspectives, the better.

Finance is the Means

All money is a matter of belief.

— Adam Smith

To many, finance is a nebulous term. It’s a term that gets thrown around quite often in our vernacular and it is something most of us take for granted. But what is finance? And more importantly, why should one care about finance? I decided to start this blog because I believe these are questions that are worthy of consideration. This inaugural post is about addressing these questions at a high level and establishing a foundation for this blog. Inevitably, all questions in finance, regardless of technicality, revert to these fundamental questions. Therefore, this post will serve as the point of departure for a myriad of interrelated topics and discussions.

So, what is finance? Let’s begin with a literal definition – finance means to “make an end.” This definition implies that all finance is supposed to serve the function of settling agreements. Essentially, finance can be thought of as a vehicle used for the purpose of transferring resources from one actor to another. How is this done? The simplest way to describe a financial system is that it serves as an intermediary for the transfer of purchasing power, and these transfers take place through transactions. More specifically, these transfers determine the allocation of assets and liabilities over space and time – often under conditions of risk and uncertainty. Put more directly, finance is the art and science of money management.

Why is this important? It’s important because finance permeates – it has an impact at the personal level, at the business level, at the state level, the national level, and most importantly, the global level. Finance is in many ways, the tie that binds. At levels small and large, the ability to effectively manage and deploy capital is essential because this is the means by which we facilitate material outcomes. Moreover, the financial system in which we are all participants is increasingly globally integrated. The implication of this is that we are all connected in unprecedented ways – personally, financially, and politically.

Ultimately, the point I intend to make here is that finance is a far-reaching concept with tangible impacts. For better or worse, we are all participants in a global financial system that dictates certain elements of our lives. The less one knows about this system, the more likely one is to be swept up in it. Conversely, the more one knows about the system, the more capable one is to act within it.